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Despite showing better than expected results, the management of Infosys does not want to term it as a 'turnaround' quarter. In a free-wheeling chat with Bibhu Ranjan Mishra & Pradeesh Chandran, the Bangalore-based company's chief executive officer & managing director S D Shibulal talks about the company's new focus areas under the chairmanship of N R Narayana Murthy, and their rationale. Edited excerpts.
Can we say all the skepticism about Infosys's performance is over now?
One quarter is not a secular trend. You need to watch a few more quarters. We are saying that we are cautiously optimistic, and that is why we have not changed our guidance. The performance has been volatile for the last few quarters. We have done a number of things; but still, there are more things to be done.
Do you think the old strategy is at play now? How much has the Murthy factor (return of N R Narayana Murthy to the company as executive chairman) helped to achieve this growth?
Mr Murthy returned to the company only recently, and his plans are getting formed. It is too early to comment on his plans and discussions. But it is a privilege to have him; because a person like him knows so much about the industry, organisation and people. He always brings different viewpoints to the table. We have some challenges. Our margins are under pressure. Our growth has been volatile. Hence, his presence makes a huge difference for us.
Murthy always believes in 'superior financial performance'; how long do you think it will take to get back to the old margins?
That Mr Murthy has already mentioned. I think he has set a target of three years.
Murthy has indicated he might have to take some Rs painful decisions' to get the company back into shape.
Any change is painful; large-scale organisational changes are painful. I am not talking about reorganisation. If you are going to do more automation, if you are going to cut onsite ratio or if you are taking some stringent decisions, all these changes can be painful.
After Basab Pradhan's departure from the company, will you have a new global sales head?
For the time being, Ashok Vemuri has been given interim charge. We are evaluating what will be the best strategy going forward.
Surprisingly, unlike the earlier quarters, you are not talking much about Infosys 3.0 strategy and its success. Is it still relevant, especially after the company's renewed focus on the 'bread and butter' business?
If you look at this quarter, our performance has been very much in line with Infosys 3.0. Infosys 3.0 is about increasing client relevance and increasing value delivery in three offerings - consulting and system integration, business and IT operations (application development and maintenance) and products & platforms. We have done reasonably well in all these areas last quarter. Our consulting and system integration business has now grown up to 34 per cent ahead of our aspiration to keep it as one-third of our business. In products & platform, we have increased our total contract value by $50 million this quarter. While executing on 3.0, we realised business and IT operations (ADM) space, which is 62 per cent of our business, was growing below our average. Hence, in the last few quarters, we have brought in a lot of focus on this business, which has resulted in wins and revenues.
But has Infosys 3.0 not talked about getting away from traditional vanilla services and positioning you as a premier consulting organisation?
It is more about balancing. Our aspiration on consulting and system integration was to grow it to a third of our business and now, it has already crossed that. We are simultaneously focusing on the other two areas.
When did you start focusing on the business and IT operations business?
A. I think we started to focus about four quarters ago, but it will take time to yield results. We had won a total contract value of about $1 billion in the second quarter of FY13. This quarter , we have wins of around $600 million.
What are the immediate challenges you see before the company?
The discretionary spend environment is volatile. If the environment is challenged, then our clients are also challenged. Large outsourcing contracts are more price-sensitive than the consulting and system integration. If you look at the industry report, majority of outsourcing deals are rebids (contract renegotiation or renewals). Rebids are more price-sensitive. Hence, they are margin-dilutive as-well, at least in the beginning. The question is how do you make them margin-neutral over the period of the contract. So, interventions like automation, predictability, right-skilling need to be done to achieve the right margin. There are also challenges to make sure growth becomes predictable.
Have you started becoming more accommodative in pricing as well?
It depends upon the offerings. If you are trying to win a large outsourcing deal, it is always price sensitive. If you are trying to win a large outsourcing deal which is a 'rebid', it becomes even more price sensitive. It is important to look at pricing as one factor in your margin, but there should be other levers to protect the margin.
What steps are you taking to bring back predictability into the business?
We are going after large outsourcing deals which give predictable business; we are focusing on products and platforms, expanding consulting and system integration business. But the reality is, the environment is also volatile and we have to accept it. For example, the Australian government has come out with a new immigration rule and we get around seven per cent of our revenues from that geography.
